Mount Spurr Geothermal Lease Sale No. 3 Final Finding of the Director June 16, 2008 Alaska Department of NATURAL RESOURCES DIVISION OF OIL & GAS Mount Spurr Geothermal Lease Sale No. 3 Final Finding of the Director Prepared by Alaska Department of Natural Resources Division of Oil and Gas June 16, 2008 Table of Contents A. Introduction ..................................................................................................................... 1 B. Call for Applications and Comments ............................................................................... 2 C. Authorities ....................................................................................................................... 2 D. Process ........................................................................................................................... 3 E. Best Interest Finding Scope of Review ........................................................................... 3 F. Final Best Interest Finding .............................................................................................. 3 G. Description of the Lease Sale Area ................................................................................ 4 H. Geology and Geophysics ................................................................................................ 6 I. Habitat, Fish and Wildlife ................................................................................................ 7 J. Current and Projected Uses ........................................................................................... 7 K. Reasonably Foreseeable Effects .................................................................................. 11 L. Transportation ............................................................................................................... 13 M. Geohazards .................................................................................................................. 14 N. Cumulative Effects ........................................................................................................ 17 O. Subsistence Uses ......................................................................................................... 18 P. Economic Effects .......................................................................................................... 23 Q. Other Effects ................................................................................................................. 24 R. Mitigation Measures and Lessee Advisories ................................................................. 24 Mitigation Measures .................................................................................. 25 1. Facilities and Operations ......................................................................... 25 2. Fish and Wildlife Habitat .......................................................................... 27 3. Subsistence, Commercial, and Sport Harvest Activities .......................... 28 4. Fuel, Hazardous Substances, and Waste ................................................ 29 5. Access ..................................................................................................... 30 6. Prehistoric, Historic, and Archeological Sites ........................................... 30 7. Local Hire, Communication, and Training ................................................ 31 8. Definitions ................................................................................................ 31 Lessee Advisories ..................................................................................... 32 1. ADNR/OHMP ........................................................................................... 32 2. ADEC ....................................................................................................... 32 3. ADLWD .................................................................................................... 33 4. USCOE .................................................................................................... 33 5. USFWS .................................................................................................... 33 6. NMFS ....................................................................................................... 34 S. Bidding Method and Lease Terms ................................................................................ 34 T. Final Finding of the Director .......................................................................................... 34 Appendix A: Summary of Comments and Responses .......................................................... A-1 Appendix B: Alaska Statutes and Regulations Governing Geothermal Leasing and Development ..................................................................................................... B-1 Appendix C: Draft Lease ....................................................................................................... C-1 Appendix D: References ....................................................................................................... D-1 Figures and Tables Figure 1 Mt. Spurr Geothermal Exploraton Area ....................................................................... 5 Figure 2 Land Status ................................................................................................................. 8 Figure 3 Moose and Fish .......................................................................................................... 9 Figure 4 Ducks and Geese ..................................................................................................... 10 Figure 5 Existing and Proposed Development ........................................................................ 15 Table 1. Annual Cycle of Seasonal Harvest Activities -- Tyonek, 1978-1982 ........................ 21 A. Introduction The Alaska Department of Natural Resources (ADNR) is offering 36,057 acres in 16 tracts on the south flank of Mount Spurr for geothermal exploration and development in Mount Spurr Geothermal Lease Sale No. 3, depicted in Figure 1, Mt. Spurr Geothermal Exploration Area. The area is located on the west side of Cook Inlet, northwest of Trading Bay, along the southern flank of Mount Spurr, and includes the east end of Chakachamna Lake and a potion of the Chakachatna River. The lease sale area, which is approximately 40 miles west of the village of Tyonek, lies entirely within the Kenai Peninsula Borough. ADNR’s Division of Oil and Gas (DO&G) initiated the proposal, which originally included a small portion of land within in the coastal zone as that term is defined at AS 46.40.210(4), subject to the Alaska Coastal Zone Management Program (“ACMP,”AS 46.40 et .seq.). DO&G removed from its initial proposed lease sale area all land within the coastal zone (Figure 1) and created a new tract from the remainder of an original tract bisected by the coastal zone. As a result, the Mount Spurr Geothermal Lease Sale No. 3 is not subject to the policies of the Alaska Coastal Management Program (ACMP) or the Kenai Peninsula Borough Coastal Management Program. Geothermal energy is heat taken from the earth. Geothermal energy resources include underground reservoirs of hot water or steam. Geothermal hot water and steam can reach the earth’s surface in the form of hot springs, geysers, mud pots, or steam vents. Geothermal resources also can be accessed by wells, and the heat energy used for generating electricity or for direct uses such as heating buildings, greenhouses, industrial processes, and aquaculture (BLM, 2007; Geothermal Resources Council, 2005). To be extractable, geothermal resources must be trapped in reservoirs near the surface of the earth. Hot springs and fumaroles (vents in the earth’s surface from which vapor and hot gas escape) are indicative of near-surface geothermal resources. Recently active volcanoes are also indicative of geothermal sites. Alaska’s approximately 140 volcanoes (one-third of which are active) and more than 90 hot springs provide tremendous potential for geothermal energy development, except that the vast majority of these sites are located far from population centers (USDOE, 2005). However, the site of Mount Spurr Geothermal Lease Sale No. 3 has an unusually close proximity to the Southcentral Alaska power grid that makes the lease sale area exceptionally viable as a geothermal energy production site. Construction of geothermal power plants is capital intensive. On the other hand, like other renewable energy sources, geothermal plants have few additional long-term costs in comparison to fuel-based electric power plants. They bear no fuel costs or associated transportation costs, and operation and maintenance costs are relatively minor. Despite the high capital costs, a typical geothermal plant's lifetime operating costs are much less than that of a diesel-powered facility of equivalent capacity. This disparity of operating costs is especially true during times of high fossil fuel prices (Alaska Report, 2006). ADNR held its first geothermal lease sale in the Mount Spurr area on May 17, 1983. 10,240 acres in 16 tracts were offered in Competitive Geothermal Lease Sale 1. One tract (Tract No. 9) received a bid. The lease for that tract was terminated in 1992. On June 24, 1986, ADNR offered 2,640 acres in two tracts in the Mount Spurr area for geothermal exploration and development in Competitive Geothermal Lease Sale 2. Both tracts received bids. The lease for Tract 1 expired in 1996, and the lease for Tract